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Work of invisible hand: the gravitation between sellers and buyers on the consumption-leisure production possibility frontier

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  • Malakhov, Sergey

Abstract

If the equilibrium price is equal to the lowest willingness to pay of consumers with zero search costs, it accumulates under price dispersion the willingness to sell of consumers with positive search costs. The satisficing searcher buys at a low price, which unintentionally equalizes marginal costs of his search with its marginal benefit and maximizes his consumption-leisure utility with regard to the equilibrium price. Labor and search costs are unit elastic with respect to the quantity demanded. Suboptimal choices reproduce initial corner solutions; satisficing purchases become optimal; consumers either buy optimally or quit the market. The producer’s knowledge is limited by the quantity demanded, but he meets the consumer with a price, like he knows in advance his willingness to pay and the time spent on search. The consumption-leisure production possibility frontier optimally allocates his time between production and delivery; it determines not only the price for the quantity demanded, but also the meeting point, where the producer stops consumer’s search and sells him goods with leisure. Being unaware of how much the consumer has spent on labor and search, the producer unintentionally optimizes his consumption-leisure choice. The transformation of producer’s time into consumer’s leisure time discovers the rate of their mutual interest or their gravitation, where its force is directly proportional to the product of quantity supplied and quantity demanded, and inversely proportional to the product of times the parties to the transaction have spent on it.

Suggested Citation

  • Malakhov, Sergey, 2021. "Work of invisible hand: the gravitation between sellers and buyers on the consumption-leisure production possibility frontier," MPRA Paper 106750, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:106750
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    References listed on IDEAS

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    5. Sergey MALAKHOV, 2018. "Propensity to Search and Income Elasticity of Demand: Does the Equilibrium Really Exist?," Expert Journal of Economics, Sprint Investify, vol. 6(1), pages 15-25.
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    12. Malakhov, Sergey, 2019. "Willingness to take care of good cars: from the theorem of lemons to the Coase theorem," MPRA Paper 98380, University Library of Munich, Germany.
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    Cited by:

    1. Malakhov, Sergey, 2021. "Invisible hand equilibrium in family: the gravitation between men and women in marriage markets," MPRA Paper 108896, University Library of Munich, Germany.

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    More about this item

    Keywords

    invisible hand; consumption-leisure choice; production possibility frontier; search; price dispersion; gravitation;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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